Petrochemical demand will continue to slide in 2009
By Tom Stundza -- Purchasing, 1/15/2009 2:00:00 AM
At the end of 2008, the economic growth needed to support petrochemicals purchasing was stalled: The U.S. is in recession, economic growth in the rest of the world has slowed considerably and several emerging nations also have fallen into recession. Economists agree with buyer Charles Covington at Rutherford Chemicals in Bayonne, N.J., who says "commodity and specialty chemical demand has dropped sharply (and) an overall chemical business downturn is expected in 2009."
A broad-based decline in U.S. petrochemicals output occurred across segments and across regions during November, reports the American Chemistry Council. Overseas, global production of chemicals also fell in November. And early December data suggests that for the entire fourth quarter, year-ago comparisons will be negative.
Forecasting 2009 chemicals demand and pricing at this point in time "involves considerable uncertainty," says Kevin Swift, chief economist of the American Chemistry Council, "but the general consensus is that the recession is spreading across the globe and will be characteristic of the business environment during 2009." He believes the global chemical market grew by only 2.2% last year to $3.18 trillion but will slide by 1.5% or more in 2009.
Swift suggests that the housing crisis and slowdown in manufacturing emanating from light vehicles and housing-related industries engendered a slowdown in the economic environment that accelerated into 2008. "End-use customer industry prospects are morose, which will present challenges in 2009 with the U.S. business of chemistry facing economic headwinds," he says.
With the escalation of energy prices in 2008 chemical shipments were estimated at $699 billion. The effects of the recession will be present in 2009 and shipments will slip to $689 billion. Overall operating rates slipped to an average of 76.8% in 2008. "Softness in chemical industry production volumes will push operating rates lower in 2009," says Swift.
The poor North American demand from automotive and construction end markets have kept chemical prices lagging. In fact, the recent decline in energy costs and weak chemical volumes likely caused producers to give back many of their earlier price gains. So, the December ethylene price of 36¢ is a 45% drop-off from the 66¢ cyclical peak of last July. It last was 36¢ in March 2007.
The bottom dropped out in December for prices on several basic chemicals: Benzene at $1.21/gallon is 72% cheaper than it was at its cyclical peak of $4.33 in September; toluene at $2/lb is 49% off its July peak of $3.96, and propylene at 45¢/lb is 40% off the July peak of 75¢. As a group, resins tracked by Purchasingdata.com are 20% cheaper than they were at the peak in September.
Prices of aliphatic, aromatic and solvent chemicals closed 2008 lower than they started 2007. Coating, inorganic and pulp and paper chemicals also closed the year well off the peak.
Ethylene operating rates down Global ethylene industry operating rates are projected to fall from 92% in early 2008 to below 90% throughout 2012, according to industry and market watcher Chemical Market Associates (CMAI) in Houston. The Persian Gulf producers will maintain strong long-term advantages, CMAI says, including world-scale assets and a leading feedstock cost position. "Many of these new plants will use dirt-cheap Middle Eastern ethane feedstock," writes CMAI. However, "Mideast producers, just like everyone else, should be clear not to upset supply/demand balances too much," says Florian Budde, a director in the chemical practice at McKinsey & Co.
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